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Qualifying for a mortgage following a Chapter 7 bankruptcy

On Behalf of | Jan 5, 2021 | chapter 7 bankruptcy |

A Chapter 7 case remains a popular option among those seeking personal bankruptcy protection due to the benefit it offers of having certain debts discharged. Indeed, according to information shared by the American Bankruptcy Institute, a vast majority of bankruptcies filed in Maryland in 2019 were Chapter 7 cases.

Yet for all of the benefits that a Chapter 7 bankruptcy offers to those struggling with debt, one also cannot overlook the impact that it has on their current (and future) financial situation. A bankruptcy affects one’s borrowing capacity (specifically their creditworthiness). Given that mortgages are typically the most sought after form of financing, many often wonder how long after filing for bankruptcy will one be able to qualify for one.

No set timeline

Unfortunately, there is no statutory guideline regulating how long one must wait until getting a mortgage. In theory, one would not have to wait very long if they are able to provide a significant down payment on a new home. However, anticipating such a possibility may be unrealistic given the fact that one was in a position to need to seek bankruptcy protection in the first place.

While there may be no official standard for how long it should take for one to get a mortgage after a Chapter 7 bankruptcy, lists the following general timelines observed for different types of financing:

         Conventional: 4 years

         USDA: 3 years

         FHA and VA: 2 years

Is there a benefit to waiting?

While one may understandably be in a hurry to improve their situations (including getting into a home), there may actually be a benefit to waiting to apply for a mortgage. It gives one additional time to save money for a significant down payment, plus the further one gets away from bankruptcy, the better the interest rate they may qualify for.

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